By Vivianne Rodrigues and Ana Nicolaci da Costa
NEW YORK/BRASILIA, March 5 (Reuters) - Brazil's central bank president on Friday sought to play down fears of a pick-up in inflation as credit expands and growth accelerates in Latin America's largest economy.
Brazil faces less inflation risks now than in the past, as inflation data reinforced the view that the economy may not be overheating, central bank president Henrique Meirelles said in New York.
The country has a highly predictable inflation path, Meirelles said one week after he said the central bank was ready to take unpopular measures to keep stability in the financial system.
Data on Friday showed the benchmark IPCA consumer price index, which the central bank uses as a guide when setting rates, rose 0.78 percent in February.
Yields on interest rate future contracts had climbed in recent weeks on rising inflation expectations, but investors have since pared some bets of a rate hike in March as recent data showed the economy still had room to grow without stoking inflation.
Interest rate futures markets show investors are about evenly divided on the possibility of a 50 basis point rate hike in March or April from 8.75 percent currently.
'Inflation surprises are less likely, and that is reflected in Brazil's low risk premium,' Meirelles said at the event organized by the Brazilian-American Chamber of Commerce in New York.
The bank would take adequate measures at the right time, Meirelles said, reiterating that changes in reserve requirement were no replacement for monetary policy.
Policymakers on Feb. 24 increased the amount of money commercial banks must hold on reserve, tightening some of the measures that helped keep the financial system afloat during the global credit crisis. See.
'Changes in reserve requirements should not be seen as a replacement for monetary policy. The best way to conduct monetary policy is via benchmark rates,' Meirelles said.
Data on Friday showed the benchmark IPCA consumer price index, which the central bank uses as a guide when setting rates, rose 0.78 percent in February. It was up from 0.75 percent in January but below the 0.8 percent expected in a Reuters survey of 30 economists.
Still, the IPCA rose 4.83 percent in the 12 months through February, surpassing the annual inflation target for a second straight month. The government targets inflation of 4.5 percent, plus or minus 2 percentage points.
'It needs attention, but I don't think it's already a case for believing in pressures from the demand side,' said Zeina Latif, chief economist at ING in Sao Paulo.
Brazilian stocks rose and the currency firmed on Friday .
POLITICAL FUTURE
Meirelles also reiterated that he would decide on his political future by the end of March and that his focus remained on the central bank, not politics.
Brazil's longest-serving central bank chief has until April 3 to step down from his current post if he decides to run in the October 2010 elections.
Meirelles signaled in February that he would not be a candidate for governor of his home-state of Goias on the PMDB party -- a move which analysts took to mean he would likely stay at the helm of the bank until the end of the year.
Meirelles could still decide to step down to run for a seat in the Senate or for vice-presidency under Workers' Party presidential candidate Dilma Rousseff.
PMDB party members told Reuters that Meirelles is coming under pressure from his own party to run for a seat in the Senate, but a top government source said there was a 90 percent chance of his remaining in office until the end of the current government's term.
The bank is also studying measures to modernize foreign exchange trading, Meirelles said, without providing details. See.
'We are studying measures to modernize the forex market, make it more friendly and to expand it overall beyond exporters,' Meirelles added.
'We resumed recently the studies to modernize the forex market. Those studies were stopped during the crisis.'
(Additional reporting Natuza Nery in Brasilia and Paula Laier in Sao Paulo, Editing by Chizu Nomiyama) Keywords: BRAZIL ECONOMY/INFLATION (ana.nicolacidacosta@thomsonreuters.com; Reuters Messaging: ana.nicolacidacosta.reuters.com@reuters.net; +55-61-3426-7027) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK/BRASILIA, March 5 (Reuters) - Brazil's central bank president on Friday sought to play down fears of a pick-up in inflation as credit expands and growth accelerates in Latin America's largest economy.
Brazil faces less inflation risks now than in the past, as inflation data reinforced the view that the economy may not be overheating, central bank president Henrique Meirelles said in New York.
The country has a highly predictable inflation path, Meirelles said one week after he said the central bank was ready to take unpopular measures to keep stability in the financial system.
Data on Friday showed the benchmark IPCA consumer price index, which the central bank uses as a guide when setting rates, rose 0.78 percent in February.
Yields on interest rate future contracts had climbed in recent weeks on rising inflation expectations, but investors have since pared some bets of a rate hike in March as recent data showed the economy still had room to grow without stoking inflation.
Interest rate futures markets show investors are about evenly divided on the possibility of a 50 basis point rate hike in March or April from 8.75 percent currently.
'Inflation surprises are less likely, and that is reflected in Brazil's low risk premium,' Meirelles said at the event organized by the Brazilian-American Chamber of Commerce in New York.
The bank would take adequate measures at the right time, Meirelles said, reiterating that changes in reserve requirement were no replacement for monetary policy.
Policymakers on Feb. 24 increased the amount of money commercial banks must hold on reserve, tightening some of the measures that helped keep the financial system afloat during the global credit crisis. See.
'Changes in reserve requirements should not be seen as a replacement for monetary policy. The best way to conduct monetary policy is via benchmark rates,' Meirelles said.
Data on Friday showed the benchmark IPCA consumer price index, which the central bank uses as a guide when setting rates, rose 0.78 percent in February. It was up from 0.75 percent in January but below the 0.8 percent expected in a Reuters survey of 30 economists.
Still, the IPCA rose 4.83 percent in the 12 months through February, surpassing the annual inflation target for a second straight month. The government targets inflation of 4.5 percent, plus or minus 2 percentage points.
'It needs attention, but I don't think it's already a case for believing in pressures from the demand side,' said Zeina Latif, chief economist at ING in Sao Paulo.
Brazilian stocks rose and the currency firmed on Friday .
POLITICAL FUTURE
Meirelles also reiterated that he would decide on his political future by the end of March and that his focus remained on the central bank, not politics.
Brazil's longest-serving central bank chief has until April 3 to step down from his current post if he decides to run in the October 2010 elections.
Meirelles signaled in February that he would not be a candidate for governor of his home-state of Goias on the PMDB party -- a move which analysts took to mean he would likely stay at the helm of the bank until the end of the year.
Meirelles could still decide to step down to run for a seat in the Senate or for vice-presidency under Workers' Party presidential candidate Dilma Rousseff.
PMDB party members told Reuters that Meirelles is coming under pressure from his own party to run for a seat in the Senate, but a top government source said there was a 90 percent chance of his remaining in office until the end of the current government's term.
The bank is also studying measures to modernize foreign exchange trading, Meirelles said, without providing details. See.
'We are studying measures to modernize the forex market, make it more friendly and to expand it overall beyond exporters,' Meirelles added.
'We resumed recently the studies to modernize the forex market. Those studies were stopped during the crisis.'
(Additional reporting Natuza Nery in Brasilia and Paula Laier in Sao Paulo, Editing by Chizu Nomiyama) Keywords: BRAZIL ECONOMY/INFLATION (ana.nicolacidacosta@thomsonreuters.com; Reuters Messaging: ana.nicolacidacosta.reuters.com@reuters.net; +55-61-3426-7027) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.